Leading International exhibitor Vue International has signed a deal to buy Cinestar, the largest multiplex chain in Germany, for as much as $256million (Euro 221.8 million) from Australian group Event Hospitality & Entertainment.

The deal comprises 57 sites and 449 screens, of which two are currently under construction scheduled for 2018 and 2019 respectively. The deal comprises an upfront payment of $150 million plus a further consideration of up to $106 million. The deal remains subject to regulatory approval.

Deal represents the largest acquisition in Vue’s history with 449 screens and follows further acquisitions in 2018 of Cinema3D in Poland and Showtime in Ireland. The deal will significantly bolster Vue’s presence in Germany where it is already one of the top three operators with Cinemaxx. The deal will therefore see the group consolidate two of the top three cinema circuits in Germany and become the single largest operator with a proposed 721 screens equating to 16.7% of the total screen base.

Our analysis

The combined footprint of the two circuits would still only equate to under 17% of screens underlining the fragmented nature of the German market but highlighting future opportunities for consolidation. The move also underscores Vue’s recent strategy to expand assets in its existing strongholds rather than branching out to new territories. For example, Vue already had a foothold in Poland and Ireland, as it does in Germany. Although this does not rule out acquiring future assets outside of its existing territories.

The acquisition of the second largest exhibitor by total screens in Germany is significant, considering the group already has over 200 screens in the territory as well as marking the largest single acquisition by screens by the company to date. The deal therefore underscores Vue’s commitment to the European theatrical market but more particularly Germany, where it has already had time to assess and have confidence in local market conditions. Vue remains one of the more active exhibitors globally in terms of acquisitions with three separate transactions to date in 2018.

The combined Cinestar/Cinemaxx circuit will become a significant force in the West European market assuming the role of fifth largest exhibitor based on local exhibitor presence after Cineworld, Odeon and Vue in the UK and Gaumont Pathe in France and one of just five exhibitors with over 700 screens.

The Cinestar screens will push Vue’s International total above 2,000 screens for the first time, although will not increase its geographic spread with 10 territories. Vue will also retain its position as seventh in the international exhibitor rankings, behind Cinemex with 3,128 screens. The leading players are Wanda/AMC and Cineworld.

Nonetheless, the acquisition has coincided with a lacklustre year for the German box office in 2018 with total admissions dropping 15.8% to June 2018. The fall can partially be linked back to the the FIFA World Cup but there has also been a reported longer-term decline in admissions per capita. That level reached 1.47 in both 2016 and 2017, with 2015 standing out as a positive year with 1.70 admits per capita. The most recent high, however, stands out as 2.18 in 2001, so while there is a softening in the average frequency, there is clearly a cyclical nature to the market where stand out films can considerably bolster a given year. The acquisition shows Vue has confidence in local market prospects outside of external forces and has cemented its long-term commitment to Germany as the third largest market by box office revenues in Europe, although ranked fourth by admissions.